Stock Market · Markets & Taxation

When you need a tax audit

Tax audit requirements for traders are one of the most confusing areas. Get it wrong and you face penalties. Get it right and you avoid unnecessary costs.

Who needs an audit?

Under Section 44AB, a tax audit by a Chartered Accountant is required if:

1. F&O turnover exceeds ₹10 crore (digital transactions): mandatory audit

2. F&O turnover is ₹2-10 crore AND net profit is less than 6% of turnover

3. You claim losses (want to carry them forward) AND turnover is above ₹2 crore

The presumptive taxation route (Section 44AD)

If your F&O turnover is below ₹2 crore, you can declare 6% of turnover as income without maintaining detailed books.

Example: Turnover ₹80 lakh. Presumptive income = ₹80 lakh × 6% = ₹4.8 lakh taxable.

> If your actual profit was ₹12 lakh, 44AD saves you by only declaring ₹4.8 lakh. But if your actual profit was ₹3 lakh, 44AD is harmful, you'd declare more.

Trap: carrying forward losses

Under 44AD (presumptive scheme), you CANNOT carry forward F&O losses to future years. If you want to claim and carry forward a loss, you must maintain books and (likely) get audited.

Practical advice

If F&O turnover < ₹2 crore and you're profitable: consider 44AD.

If you have losses to carry forward: maintain books, file ITR-3 with proper P&L.

Takeaway. Audit is required if F&O turnover exceeds ₹10 crore, or ₹2-10 crore with profit below 6%. Traders under ₹2 crore can use presumptive tax (44AD) but cannot carry forward losses under that scheme.